Illustration - sole trader or company

In this lesson

1. 0:00 Business structure choice: sole trader vs company
2. 0:27 Loss relief options for each structure
3. 1:54 Sole trader loss relief in detail
4. 2:42 Post-tax income calculation setup
5. 3:09 Sole trader income tax and National Insurance
6. 4:37 Company structure tax calculation
7. 5:20 Shannon's personal tax on salary and dividends
8. 6:25 Comparing post-tax income outcomes
9. 6:58 Strategic advice on business structure timing

About this lesson

You'll discover how loss relief works differently for each structure, calculate post-tax income under both scenarios, and develop the skills to advise on the most tax-efficient option. The lesson works through a realistic illustration where Shannon must decide whether to operate as a sole trader or through a company. You'll explore how early years loss relief allows sole traders to carry losses back against previous years' income and claim tax refunds, whilst companies can only carry losses forward. This foundation matters because it directly affects your approach to tax planning questions on TX and ATX papers. Next, you'll calculate Shannon's post-tax income in year two under both structures, working through income tax, National Insurance, and corporation tax. The key insight here is understanding how a sole trader is taxed on all trading profits regardless of drawings taken, whilst a company structure allows salary and dividend optimisation. You'll see how employer's National Insurance on salaries, the dividend nil rate band, and marginal relief all influence the final tax bill. Finally, you'll learn to advise on structure choice by weighing loss relief benefits against ongoing tax efficiency. The lesson shows that starting as a sole trader to capture loss relief, then incorporating once profitable, often delivers the best outcome. This integrated approach—combining relief timing with income optimisation—is exactly what examiners expect to see in your TX and ATX answers.

Duration: 7m